Words and Facts:Randy Petersen's Opening Remarks

In this issue we are featuring Part 1 of our annual interviews with industry insiders. We understand that not much goes on with loyalty programs in the middle of the summer, so each year for the past five years, we’ve conducted interviews with various program executives from around the world, giving our readers something they can find nowhere else. I was extremely interested in what Gary Kelly, the CEO of Southwest Airlines, had to say. And if you read closely between the lines of his words, you’ll probably find apparent as I did that this program, which already leads most surveys and polls in member satisfaction levels, will have an interesting future despite its very rich and positive past.

One of the interviews we had scheduled but had to move to next month because of a scheduling conflict is with Jonathan Miles, author of a new book titled “Dear American Airlines,” which chronicles the complaint of a stranded passenger — an 180-page letter of complaint. This should be a wonderful chance to hear from someone who is gifted enough to put into highly entertaining words the very experience that many of us have experienced in our travel. As well, we’re looking forward to providing you with the first up-close-and-personal interview with the marketing executives of Virgin America. So as you turn these pages, be prepared for much more next month.

In the past few weeks I’ve gotten the usual number of phone calls from various media all wanting to talk about the cutbacks of the industry and how it certainly means that frequent flyers today are not going to be able to use their miles. As I often do, I try and separate the facts from the fiction. The facts seem to indicate something else and that we’ll be just fine. Okay, I know that some of the critics out there will be sputtering about now, but let’s take a close look at the facts. I often use the bellwether frequent flyer program of Continental OnePass as an indicator of the industry. The reason why is because they typically range in the middle of where airlines fall in the overall award redemption numbers that we annually gather from the airlines’ financial reports. Not the best, not the worst, and they have several caveats in their redemption process, like a required Saturday night stay and a fee for certain BusinessFirst redemptions. Continental is one of the few airlines that actually publishes their award redemption data in near real time, which allows me to use them as a resource to determine what is actually going on with award redemption. So with a few dozen calls from the media on hand, I thought I better do some research before spouting off anything. As to the airlines’ cutbacks and making awards harder to redeem — the numbers show something different — you be the judge, I’m just doing the research. In April of this year, OnePass handled 191,253 award redemptions. In April 2007, they handled 150,392 award redemptions. That is a 27.2 percent increase in the number of awards redeemed. So much for the idea that airlines were cutting back redemption. In fact, March 2008 was 13.1 percent more than the previous year, February was 18.3 percent more than the previous year and January was up 12.5 percent from 2007. So far for the first four months of 2008, OnePass redemptions are up an average of 17.5 percent. No matter your thoughts, it seems to be difficult to claim that airlines are cutting back and that seats are harder to get since most of these redemptions are likely for the popular summer travel season.

These statistics could be interpreted a few different ways, so let me guide you. They could indicate the impact of the economy right now and that more members are using miles than money for their annual travel plans. This is a trend that I noticed before in the late months of 2000 and early months of 2001 when the economy was in a bit of a dive. And it occurred in the early 90s as well with the economic impact of the first Gulf War. But when I go back to these other times, there was not the sort of increase in award redemptions like we are seeing today. This could be because the membership base of the OnePass program is much larger today than in the past, or it could mean that the economy is more troubled than some might think. For the optimist, it might mean that the airlines are being nicer and giving away more awards. Sorry, as much as I admire OnePass, I don’t think it is that last one. I think that these awards have always been available from OnePass but just were never demanded. Whatever the reasons, it is clear in a very factual manner that in this particular case, the frequent flyer program of Continental Airlines is not cutting back award availability and that it does not seem to be harder to claim your awards than in years past. And there’s another factor in this increase — many of the programs have made huge improvements in the manner in which they show the available inventory of awards with online booking tools. And with some, such as Delta now showing more of their partner award inventory online, it makes a much better environment in which to determine award availability and redemption.

Whatever the reasons, it may not be as dire as some of the critics seem to indicate from their own emotional experience. Now, let’s be clear. This may all change as members start to plan redemption for the fall and into next year when additional route changes take effect. But even then I don’t see doom and heartache for you to be able to use your miles. I point to the fact that the changes announced by the airlines are less than the reductions the industry took right after 9/11, and there wasn’t that big a media topic then. And when we look closely at the announced changes, they’re a mixed variety that will please some members and upset others. The increase in international routes is welcome since more and more members want to see the world, and as most of us know, it is those destinations where members get the highest value out of their miles compared to redemption for most domestic markets. Whatever your occasional thoughts of doom, keep in mind these facts and that just maybe the world of miles is not falling apart.

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